Wall Street opened lower on Tuesday as investors reacted to a hotter-than-expected inflation report and mounting concerns that the ongoing US-Iran conflict could continue driving oil prices higher and delaying potential Federal Reserve interest rate cuts.
The S&P 500 fell 0.39%, while the Nasdaq Composite dropped 0.66%.
The Dow Jones Industrial Average slipped 156 points.
The weaker tone followed another record-setting session on Monday, when the S&P 500 and Nasdaq Composite closed at fresh all-time highs amid continued enthusiasm surrounding artificial intelligence-related stocks and strong corporate earnings.
However, investor sentiment shifted on Tuesday after new inflation data reinforced concerns that rising energy prices tied to geopolitical tensions could keep inflation elevated for longer.
Inflation data strengthens case for higher rates
The latest Consumer Price Index report showed US inflation accelerated again in April.
According to the Bureau of Labor Statistics, headline CPI rose 0.6% during the month, while annual inflation increased to 3.8%, slightly above economists’ expectations of 3.7%.
The reading marked the highest annual inflation rate since May 2023.
The report highlighted the growing impact of higher oil and energy prices on inflation as the conflict involving Iran continues to pressure global energy markets.
The inflation data has further reduced expectations that the Federal Reserve could begin cutting interest rates this year.
Before the escalation of the Iran conflict, traders had been expecting two rate cuts in 2026.
According to CME Group’s FedWatch Tool, markets now expect the Fed to keep rates unchanged through the end of the year.
Oil prices rise as US-Iran negotiations remain stalled
Investor concerns intensified after President Donald Trump said the ceasefire between the US and Iran was “on life support” following Tehran’s rejection of a US proposal aimed at ending the conflict.
Trump also described the ceasefire as “unbelievably weak” after dismissing Iran’s latest counterproposal as unacceptable.
Iran’s latest demands reportedly include war reparations, the release of frozen Iranian assets, sanctions relief, and continued sovereignty over the Strait of Hormuz.
The lack of progress in negotiations has kept oil markets on edge as the strategically important Strait of Hormuz remains largely closed.
US West Texas Intermediate crude futures climbed another 2% on Tuesday to trade above $100 per barrel, while Brent crude rose 3% to above $107 per barrel.
The gains extended Monday’s rally in oil prices and renewed fears that prolonged supply disruptions could place further pressure on inflation and consumer spending.
Investors are also watching upcoming producer price index and retail sales reports later this week for additional clues about how rising energy costs are affecting the broader economy.
AI-driven semiconductor rally pauses
The strong rally across semiconductor and AI-related stocks also cooled on Tuesday after leading the broader market higher in recent sessions.
Micron Technology, which helped push the S&P 500 and Nasdaq to record highs on Monday, fell more than 3.6% after surging over 37% last week and gaining more than 6% during the previous session.
Intel shares declined 3.74% after jumping more than 17% across the prior two trading sessions.
The broader pullback suggested investors may be taking profits following the sharp run-up in semiconductor stocks tied to artificial intelligence infrastructure demand.
Among other notable movers, Hims & Hers Health dropped 11% after the telehealth company missed Wall Street revenue estimates and reported a surprise quarterly loss.
Meanwhile, Venture Global rose 8% after the liquefied natural gas exporter raised its annual adjusted core profit forecast.
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